There are many different tools that can be utilized when you are planning your estate. As a layperson, there is no reason for you to have knowledge of all the devices that are available to you and why you may want to use one instead of another.
With this in mind, we are going to look at five different situations that would call for the utilization of some type of trust in this post.
Protection From Future Creditors
People that are in high-risk professions and some business owners have to be prepared for potential legal actions. If you have concerns about future creditors or lawsuits damaging your legacy, you can proactively implement an asset protection strategy.
Under these circumstances, a self-settled asset protection trust can provide a solution. If you convey assets into this type of trust, they would be protected from future legal actions and most creditors.
It would be an irrevocable trust, so you could not act as the trustee, but you could potentially receive distributions from the trust. They are not recognized in New York, but you could establish this type of trust in a state that allows them, like Delaware or Nevada.
Estate Tax Efficiency
The federal estate tax can eat up a significant portion of your estate because it carries a 40% maximum rate. It is applicable on the portion of an estate that exceeds the exclusion, which is $11.7 million in 2021.
Here in New Yok, we have a state-level estate tax with a $5.93 million exclusion this year.
If you are exposed to the estate tax, you could use an irrevocable trust, or multiple trusts, to mitigate the damage. The trusts that can be utilized include generation-skipping trusts, grantor retained annuity trusts, qualified personal residence trusts, irrevocable life insurance trusts, and charitable lead trusts.
Probate Avoidance and Spendthrift Protections
A will would be admitted to probate, and the court would provide supervision during the administration process. This is a time-consuming proceeding that will typically take nine months at minimum, and the inheritors have to wait it out.
There are expenses that accumulate during probate, and anyone that wants to access the records can find out how you decided to distribute your resources.
If all this sounds less than ideal, you can avoid probate through the utilization of a revocable living trust. You would act as the trustee and the beneficiary while you are alive, so you would have direct access to your property throughout your life.
After your passing, the trustee that you name to succeed you would distribute assets to the beneficiaries outside of probate. You could include a spendthrift provision to protect the principal from the beneficiaries’ creditors, and you can stipulate a measured distribution structure if this is your choice.
Nursing Home Asset Protection
Just over one third of senior citizens will eventually live in nursing homes, and in our area, the average annual cost is well over $100,000. Medicare will not pay for long-term custodial care, but Medicaid will pick up the tab if you can qualify.
You could choose to convey assets into an irrevocable Medicaid trust in an effort to develop a suitable financial profile. While you are living independently, you would be able to receive distributions of income that is generated by assets in the trust.
An incentive trust can be used to guide a loved one toward a certain behavior or away from destructive behavior. You would set some type of conditions, and distributions would be contingent upon the compliance of the beneficiary.
For example, you could instruct the trustee to pay tuition and provide distributions for living expenses while your grandchild is a student in good standing at a college or university. You could then allow a dollar-for-dollar match of money that is earned on the job after graduation.
We Are Here to Help!
If you are ready to put a plan in place, we can gain an understanding of your situation, apprise you of your options, and make recommendations. At the end of the process, you will go forward with a custom crafted plan that is ideal for you and your family.
You can schedule a consultation appointment at our Smithtown, NY estate planning office if you call us at 631-265-0599. If you would prefer to send us a message, fill out our contact form and we will get back in touch with you promptly.
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